Treasury Department Takes Over 180 Billion Dollars in Defaulted Student Loans from Education Department
The U.S. Treasury Department began taking over collection of approximately 180 billion dollars in defaulted federal student loans from the Education Department in March 2026. About 9.2 million borrowers are in default. The move is part of a broader plan to transfer the entire 1.7 trillion dollar federal student loan portfolio to Treasury, which critics call an illegal scheme.
The U.S. Treasury Department took over collection of roughly 180 billion dollars in defaulted federal student loans from the Education Department in March 2026, the first phase of a broader plan to shift the entire federal student loan portfolio to Treasury.
About 9.2 million borrowers are currently in default, with an additional 2.4 million in late-stage delinquency. The total federal student loan portfolio stands at nearly 1.7 trillion dollars, covering more than 42 million borrowers.
Education Secretary Linda McMahon said the Treasury's financial expertise would lead to better program management. Treasury Secretary Scott Bessent said his department has "the operational capability and the financial expertise to bring long overdue financial discipline to the program."
The transition is planned in three phases. Phase one covers defaulted loans. Phase two will expand Treasury's role to non-defaulted loans. Phase three will transfer administration of the Free Application for Federal Student Aid, known as FAFSA.
The Education Department said the changes should be "seamless" for borrowers, who will not need to take any additional action.
Critics pushed back hard. Democratic senators including Elizabeth Warren and Bernie Sanders called the move an "illegal scheme," arguing that McMahon lacks the authority to transfer these responsibilities without congressional approval. They pointed to language in a recent spending package that explicitly bars the Education Department from transferring its core responsibilities to other agencies.
Advocates raised concerns about borrowers in default who may face wage garnishment and seizure of federal tax refunds. The Default Resolution Group, which previously helped defaulted borrowers with counseling and rehabilitation programs, was also transferred to Treasury, potentially causing delays for those seeking to regain good standing.
The Education Department has already cut nearly half of its Federal Student Aid employees under the Trump administration.
